Press Release Details

New Relic Announces Second Quarter Fiscal Year 2019 Results

Quarterly GAAP operating loss of $(5.5) million; Non-GAAP operating
income of $9.7 million

SAN FRANCISCO--(BUSINESS WIRE)--
New Relic, Inc. (NYSE: NEWR), provider of real-time insights for
software-driven businesses, today announced financial results for the
second quarter of fiscal year 2019 ended September 30, 2018.

“Results for the second quarter exceeded our expectations and marked a
successful first half of FY19,” said Lew Cirne, CEO and founder, New
Relic. “Enterprise DevOps teams are under pressure to move faster and
deliver high-performing software, at scale. That’s why they’re
increasingly adopting New Relic as the single platform to manage the
performance of their critical digital initiatives – from the customer
experience, through applications to the underlying infrastructure.”

Second Quarter Fiscal Year 2019 Financial Highlights*:

Revenue of $114.9 million, compared to $84.7 million for the second
quarter of fiscal 2018.

GAAP loss from operations was $(5.5) million, compared to $(14.8)
million for the second quarter of fiscal 2018.

Non-GAAP income from operations was $9.7 million, compared to a loss
of $(3.5) million for the second quarter of fiscal 2018.

GAAP net loss attributable to New Relic per basic share was $(0.15),
compared to a loss of $(0.27) per basic share for the second quarter
of fiscal 2018.

Non-GAAP net income attributable to New Relic per diluted share was
$0.20, compared to a loss of $(0.06) per basic share for the second
quarter of fiscal 2018.

Cash, cash equivalents and short-term investments were $731.1 million
at the end of the second quarter of fiscal 2019, compared with $720.9
million at the end of the first quarter of fiscal 2019.

*New Relic adopted Accounting Standards Codification (ASC) 606 “Revenue
from Contracts with Customers” (ASC 606) using the modified
retrospective method on April 1, 2018. Unless otherwise stated, the
financial metrics for reporting periods during fiscal year 2019 provided
in this release are presented in compliance with ASC 606, which replaced
ASC 605, “Revenue Recognition” (ASC 605). The financial metrics for
reporting periods prior to fiscal year 2019 are presented as previously
disclosed in conformity with ASC 605. A reconciliation between our
performance with respect to certain financial metrics under ASC 606 to
ASC 605 has been included in the appendix to this release.

Second Quarter & Recent Business Highlights:

$100K+ Paid Business Accounts as of September 30, 2018 of 786,
compared to 586 as of September 30, 2017.

56% of ARR from Enterprise Paid Business Accounts as of September 30,
2018, compared to 51% as of September 30, 2017.

Dollar-Based Net Expansion Rate for the second quarter of fiscal 2019
of 124%, compared to 123% as of the second quarter of fiscal 2018.

Added
Michael Christenson, Managing Director of Allen & Company LLC, and
Caroline Watteeuw, Executive Vice President and Chief Information
Officer of Caliber Home Loans, to the Board of Directors, effective
August 21, 2018, bringing the total number of directors to nine.

New Relic has not reconciled its expectations as to non-GAAP income from
operations or non-GAAP net income per diluted share to their most
directly comparable GAAP measure as a result of uncertainty regarding,
and the potential variability of, reconciling items such as stock-based
compensation, lawsuit litigation expenses and employer payroll taxes on
equity incentive plans. Accordingly, reconciliation is not available
without unreasonable effort, although it is important to note that these
factors could be material to New Relic’s results computed in accordance
with GAAP.

Third Quarter Fiscal 2019 Outlook:

Revenue between $118.5 million and $120.5 million, representing
year-over-year growth of between 29% and 31%, respectively.

Non-GAAP income from operations of between $3.5 million and $4.5
million.

Non-GAAP net income attributable to New Relic per diluted share
between $0.12 and $0.13.

Full Year Fiscal 2019 Outlook:

Revenue between $466.5 million and $469.5 million, representing
year-over-year growth of between 31% and 32%, and an increase from
prior guidance of between $457.5 million and $462.5 million that
was issued on August 7, 2018.

Non-GAAP income from operations of between $22.0 million and $24.0
million, an improvement from prior guidance of between $18.0
million and $22.0 million that was issued on August 7, 2018.

Non-GAAP net income attributable to New Relic per diluted share
between $0.42 and $0.48, an improvement from prior guidance of
between $0.39 and $0.46 that was issued on August 7, 2018.

Conference Call Details:

What: New Relic financial results for the second quarter of
fiscal year 2019 and outlook for the third quarter and the full year
of fiscal 2019

Dial in: To access the call in the U.S., please dial (866)
393-4306, and for international callers, please dial (734) 385-2616.
Callers may provide confirmation number 9225017 to access the call
more quickly, and are encouraged to dial into the call 10 to 15
minutes prior to the start to prevent any delay in joining.

Replay: Following the completion of the call through 11:59 PM
Eastern Time on November 13, 2018, a telephone replay will be
available by dialing (855) 859-2056 from the United States or (404)
537-3406 internationally with conference ID 9225017.

About New Relic

New Relic provides the real-time insights that software-driven
businesses need to innovate faster. New Relic’s cloud platform makes
every aspect of modern software and infrastructure observable, so
companies can find and fix problems faster, build high-performing DevOps
teams, and speed up transformation projects. Learn why more than 50% of
the Fortune 100 trust New Relic at newrelic.com.

Forward-Looking Statements

This press release and the earnings call referencing this press release
contain “forward-looking” statements, as that term is defined under the
federal securities laws, including but not limited to statements
regarding New Relic’s future financial performance, including its
outlook on financial results for the third quarter and for the full year
of fiscal 2019, such as revenue, non-GAAP income from operations,
non-GAAP net income per diluted share, free cash flow, gross margins,
operating margins, deferred revenue, physical capital expenditures,
capitalized software, cash from operations, anticipated headcount,
including hiring plans for the remainder of fiscal 2019, fiscal 2019
capital expenditures, and market trends and opportunity, including the
anticipated success of New Relic’s application-centric strategy, the
ability to become the dominant platform for monitoring, managing, and
operating digital systems, the increasing use of software to improve
business outcomes, the opportunity in the market segment that is
currently not using a monitoring platform, the market opportunity beyond
APM, New Relic’s favorable position within the technology value chain,
the ability to provide meaningful value to evolving modern digital
environments using New Relic’s multi-tenant model, the growth of the
platform or any individual product, New Relic’s customer adoption,
including any fluctuations to the paid business accounts metric as New
Relic focuses toward upmarket opportunities and optimizing for
economical growth, New Relic’s ability to scale, the pace of hiring
activity and seasonality. These forward-looking statements are based on
New Relic’s current assumptions, expectations and beliefs and are
subject to substantial risks, uncertainties, assumptions and changes in
circumstances that may cause New Relic’s actual results, performance or
achievements to differ materially from those expressed or implied in any
forward-looking statement.

The risks and uncertainties referred to above include, but are not
limited to, New Relic’s ability to generate sufficient revenue to
achieve and sustain profitability, particularly in light of its
significant ongoing expenses; New Relic’s short operating history in an
evolving industry; New Relic’s ability to manage its significant recent
growth; the development of the overall market for SaaS business
software; the dependence of New Relic’s business on its customers
purchasing additional subscriptions and products from it and renewing
their subscriptions; New Relic’s ability to develop enhancements to its
products, increase adoption and usage of its products and introduce new
products that achieve market acceptance; the dependence on customers
expanding their use of New Relic’s products beyond the current
predominant use cases; New Relic’s ability to determine optimal prices
for its products; New Relic’s ability to expand its marketing and sales
capabilities and increase sales of its solutions to large enterprises
while mitigating the risks associated with serving such customers;
privacy concerns, including changes in privacy laws and regulations,
which could result in additional cost and liability to New Relic or
inhibit sales; New Relic’s ability to effectively compete in the
intensely competitive market for application performance monitoring
solutions and respond effectively to rapidly changing technology,
evolving industry standards and changing customer needs, requirements or
preferences; fluctuation of New Relic’s quarterly results, New Relic’s
dependence on lead generation strategies to drive sales and revenue;
interruptions or performance problems associated with New Relic’s
technology and infrastructure; defects or disruptions in New Relic’s
products; the expense and complexity of New Relic’s ongoing and planned
investments in data center hosting facilities; risks associated with
international operations; New Relic’s ability to protect its
intellectual property rights; certain risks associated with incurring
indebtedness, including risks related to servicing New Relic’s
convertible senior notes and related capped call transactions; and other
“Risk Factors” set forth in New Relic’s most recent filings with the
Securities and Exchange Commission (the “SEC”).

Further information on these and other factors that could affect New
Relic’s financial results and the forward-looking statements in this
press release and in the earnings call referencing this press release is
included in the filings New Relic makes with the SEC from time to time,
particularly under the captions “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” including in the Quarterly Report on Form 10-Q and
subsequent filings. Copies of these documents may be obtained by
visiting New Relic’s Investor Relations website at http://ir.newrelic.com
or the SEC’s website at www.sec.gov.

All information provided in this press release and in the earnings call
is as of the date hereof and New Relic assumes no obligation and does
not intend to update these forward-looking statements, except as
required by law.

Non-GAAP Financial Measures

New Relic discloses the following non-GAAP financial measures in this
release and the earnings call referencing this press release: non-GAAP
income (loss) from operations, non-GAAP gross profit, non-GAAP gross
margin, non-GAAP operating margin, non-GAAP sales and marketing expense,
non-GAAP research and development expense, non-GAAP general and
administrative expense, non-GAAP net income (loss), non-GAAP net income
per diluted share, non-GAAP net loss per basic share and free cash flow.
New Relic uses each of these non-GAAP financial measures internally to
understand and compare operating results across accounting periods, for
internal budgeting and forecasting purposes, for short- and long-term
operating plans, and to evaluate New Relic’s financial performance. In
addition, New Relic’s bonus plan for eligible employees and executives
is based in part on non-GAAP income (loss) from operations. New Relic
believes they are useful to investors, as a supplement to GAAP measures,
in evaluating its operational performance, as further discussed below.
New Relic’s non-GAAP financial measures may not provide information that
is directly comparable to that provided by other companies in its
industry, as other companies in its industry may calculate non-GAAP
financial results differently, particularly related to non-recurring and
unusual items. In addition, there are limitations in using non-GAAP
financial measures because the non-GAAP financial measures are not
prepared in accordance with GAAP and may be different from non-GAAP
financial measures used by other companies and exclude expenses that may
have a material impact on New Relic’s reported financial results.

Non-GAAP financial measures should not be considered in isolation from,
or as a substitute for, financial information prepared in accordance
with GAAP. A reconciliation of the historical non-GAAP financial
measures to their most directly comparable GAAP measures has been
provided in the financial statement tables included below in this press
release.

New Relic defines non-GAAP gross profit, non-GAAP sales and marketing
expense, non-GAAP research and development expense, non-GAAP general and
administrative expense, non-GAAP income (loss) from operations and
non-GAAP net income (loss) as the respective GAAP balances, adjusted
for, as applicable: (1) stock-based compensation expense, (2)
amortization of stock-based compensation capitalized in software
development costs, (3) the amortization of purchased intangibles, (4)
the transaction costs related to acquisition, (5) lawsuit litigation
expense, (6) employer payroll tax expense on equity incentive plans, and
(7) amortization of debt discount and issuance costs. Non-GAAP net
income (loss) per basic and diluted share is calculated as non-GAAP net
income (loss) divided by weighted average shares used to compute net
income (loss) per share attributable to common stockholders, with the
number of weighted average shares decreased to reflect the anti-dilutive
impact of the capped call transactions entered into in connection with
the 0.50% Convertible Senior Notes due 2023 issued in May 2018. New
Relic defines free cash flow as GAAP cash from operations, minus capital
expenditures and minus capitalized software. Investors are encouraged to
review the reconciliation of these historical non-GAAP financial
measures to their most directly comparable GAAP financial measures.

Management believes these non-GAAP financial measures are useful to
investors and others in assessing New Relic’s operating performance due
to the following factors:

Stock-based compensation and amortization of stock-based compensation
capitalized in software development costs. New Relic utilizes
share-based compensation to attract and retain employees. It is
principally aimed at aligning their interests with those of its
stockholders and at long-term retention, rather than to address
operational performance for any particular period. As a result,
share-based compensation expenses vary for reasons that are generally
unrelated to financial and operational performance in any particular
period.

Amortization of purchased intangibles and transaction costs related
to acquisition. New Relic views amortization of purchased intangible
assets as items arising from pre-acquisition activities determined at
the time of an acquisition. While these intangible assets are evaluated
for impairment regularly, amortization of the cost of purchased
intangibles is an expense that is not typically affected by operations
during any particular period. Similarly, New Relic views acquisition
related expenses as events that are not necessarily reflective of
operational performance during a period.

Lawsuit litigation expense. New Relic may from time to time incur
charges or benefits that are outside of the ordinary course of New
Relic’s business related to litigation. New Relic believes it is useful
to exclude such charges or benefits because it does not consider such
amounts to be part of the ongoing operation of New Relic’s business and
because of the singular nature of the claims underlying the matter.

Employer payroll tax expense on equity incentive plans. New Relic
excludes employer payroll tax expense on equity incentive plans as these
expenses are tied to the exercise or vesting of underlying equity awards
and the price of New Relic’s common stock at the time of vesting or
exercise. As a result, these taxes may vary in any particular period
independent of the financial and operating performance of New Relic’s
business.

Amortization of debt discount and issuance costs. In May 2018,
New Relic issued approximately $500 million of convertible senior notes
due in 2023, which bear interest at an annual fixed rate of 0.50%. The
imputed interest rate of the convertible senior notes was approximately
5.74%. This is a result of the debt discount recorded for the conversion
feature that is required to be separately accounted for as equity, and
debt issuance costs, which reduce the carrying value of the convertible
debt instrument. The debt discount is amortized as interest expense
together with the issuance costs of the debt. The expense for the
amortization of debt discount and debt issuance costs is a non-cash
item, and we believe the exclusion of this interest expense will provide
for a more useful comparison of our operational performance in different
periods.

Anti-dilutive impact of capped call transactions. In connection
with the issuance of its convertible senior notes due in 2023, New Relic
entered into capped call transactions to offset potential dilution from
the embedded conversion feature in the notes. Although New Relic cannot
reflect the anti-dilutive impact of the capped call transactions under
GAAP, New Relic does reflect the anti-dilutive impact of the capped call
transactions in non-GAAP net income (loss) per basic and diluted share
to provide investors with useful information in evaluating the financial
performance of the company on a per share basis.

Additionally, New Relic’s management believes that the non-GAAP
financial measure free cash flow is meaningful to investors because
management reviews cash flows generated from operations after taking
into consideration capital expenditures and the capitalization of
software development costs due to the fact that these expenditures are
considered to be a necessary component of ongoing operations.

Operating Metrics

New Relic’s dollar-based net expansion rate compares its recurring
subscription revenue from customers from one period to the next. It is
increased when customers increase their use of New Relic’s products, use
additional products, or upgrade to a higher subscription tier. New
Relic’s dollar-based net expansion rate is reduced when customers
decrease their use of New Relic’s products, use fewer products, or
downgrade to a lower subscription tier.

New Relic’s monthly recurring revenue represents the revenue that New
Relic would contractually expect to receive from those customers over
the following month, without any increase or reduction in any of their
subscriptions. Similarly, annual recurring revenue represents the
revenue that New Relic would contractually expect to receive from those
customers over the following 12-month period, without any increase or
reduction in any of their subscriptions.

New Relic defines the number of paid business accounts at the end of any
particular period as the number of accounts at the end of the period as
identified by a unique account identifier for which New Relic has
recognized revenue on the last day of the period indicated. New Relic
defines an enterprise paid business account as a paid business account
that New Relic measures to have over 1,000 employees.

New Relic is a registered trademark of New Relic, Inc.

All product and company names herein may be trademarks of their
registered owners.

Condensed Consolidated Statements of Operations

(In thousands, except per share data; unaudited)

Three Months Ended September 30,

Six Months Ended September 30,

2018

2017

2018

2017

Revenue

$

114,896

$

84,685

$

223,117

$

164,783

Cost of revenue

18,447

15,694

35,497

30,671

Gross profit

96,449

68,991

187,620

134,112

Operating expenses:

Research and development

23,962

18,266

46,565

36,532

Sales and marketing

61,142

51,261

118,630

100,622

General and administrative

16,880

14,305

31,591

28,247

Total operating expenses

101,984

83,832

196,786

165,401

Loss from operations

(5,535

)

(14,841

)

(9,166

)

(31,289

)

Other income (expense):

Interest income

3,259

512

5,104

969

Interest expense

(5,597

)

(21

)

(8,263

)

(43

)

Other income (expense), net

(435

)

(152

)

(1,277

)

162

Loss before income taxes

(8,308

)

(14,502

)

(13,602

)

(30,201

)

Income tax provision

225

189

546

424

Net loss

(8,533

)

(14,691

)

(14,148

)

(30,625

)

Net loss attributable to redeemable non-controlling interest

197

—

197

—

Net loss attributable to New Relic

$

(8,336

)

$

(14,691

)

$

(13,951

)

$

(30,625

)

Net loss per share, basic and diluted

$

(0.15

)

$

(0.27

)

$

(0.25

)

$

(0.57

)

Weighted-average shares used to compute net loss per share, basic
and diluted

56,706

54,699

56,446

54,201

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

September 30,

March 31,

2018

2018

Assets

Current assets:

Cash and cash equivalents

$

196,797

$

132,479

Short-term investments

534,311

115,441

Accounts receivable, net of allowance for doubtful accounts of
$1,551 and $1,728, respectively